Friday, February 05, 2010

OUCH: "Premier Zapatero may have started as the Spanish Kennedy and will finish as the Spanish Bush Junior."

The country's economy keeps getting worse and worse, and the impact in the stock market is huge.

And the general mood has totally changed. You can count the number of people who still defend the government with one hand, even among leftists. The commentariat, pundits and bloggers were just brutal yesterday, and so far it seems today it's going to be the same. We've reached a turning point that, alas, the stubborn Zapatero doesn't seem to get.

Spanish Prime Minister Jose Luis Rodriguez Zapatero, facing investor concerns about Spain's indebtedness, said on Thursday his country was financially "solid" and would rein in its public deficit.

Speaking at a conference in Washington, Zapatero said Spain faced big economic challenges, but did not have to inject funds into its financial system like other countries.

"That will help reduce the public deficit," he said, addressing one of the main worries that made stocks .IBEX plunge almost 6 percent on Thursday and increased pressure over bonds.

True, there hasn't been any injection of public funds into Spain's financial system, but it's a matter of time, considering that Spanish banks hold about $450 billion -- an equivalent of 30% of the country's GDP -- in nonperforming loans, as I wrote the other day. So either he doesn't know, which would be unacceptable or, as teenagers do, he knows and thinks that the problem will disappear by itself just by denying it, while people won't notice. It's really difficult to know which is worse.

UPDATE II. If you think I'm exaggerating, take a look at this chart by McKinsey showing Spain's total debt, including government, non-financial business, households and financial institutions, as a staggering 366% of GDP (click to enlarge):

Also, while it may be true, as the Zapatero government spin goes, a 56% public debt over GDP (60% forecasted for 2011) is much lower than many countries, what makes it different is that the debt is very short-term, about one year. If you add the €100bn deficit ($137 bn) in 2009, plus other €125 bn (€$171 bn) maturing within 2010, it's going to be extremely difficult to raise that much money at a reasonable price. We're talking about €225 bn ($308 bn).